Germanys ZEW index takes a surprise fall down to 61.7
There’s much media focus on the world economic forum taking place in Davos Switzerland which begins Wednesday evening. The event has given many organizations the opportunity to publish their own findings with regards to the state of the global economy. Yesterday there was leaked information from the IMF declaring that global growth in 2014 would rise to 3.6%. At the same time Oxfam published their hard hitting findings with the attention grabbing headline that 85 individuals hold half of the global wealth and assets of the global economy.
This morning it’s the ILO, the international labour organisations, turn to step up to the microphone and vent their findings regarding the state of the labour market globally. The ILO, as a part of the UN, summed up the current situation perfectly in one sentence;
International Labour Organisation says firms are increasing pay-outs to shareholders rather than investing in new workers.
The irony that the IMF, Oxfam and the ILO are issuing statements to coincide with a meeting held for the ‘great and the greatest’, in one of the most exclusive ski resorts on the planet, should remind us all that the overall message is that the status quo will remain and will not be disrupted. The forum wills no doubt navel gaze and suggest micro improvements that’ll take decades to impact. Then attention will no doubt turn to the main event of the gathering, the lavish party which must always go on, especially for the 85 and those closely connected to them.
ZEW Indicator – Positive Sentiment Persists
Hovering at a high level, economic expectations for Germany moved sidewards in this month’s survey. In January 2014 the ZEW Indicator of Economic Sentiment has decreased only marginally by 0.3 points and now stands at the 61.7 points-mark (historical average: 24.4 points).
Bank of England Trends in Lending
The rate of decline in the stock of lending to UK businesses eased slightly in the year to November compared to 2012. The annual rate of growth in the stock of secured lending to individuals rose slightly to 0.8% in the three months to November. Mortgage approvals by all UK-resident mortgage lenders for house purchase continued to rise. Total net consumer credit flows were positive and broadly unchanged compared to the previous period.
International Labour Organisation says firms are increasing pay-outs to shareholders rather than investing in new workers
As the World Economic Forum begins in the Swiss town of Davos on Wednesday with a focus on growing inequality, the ILO reports a “potentially dangerous gap between profits and people”.
The UN agency forecasts that millions more people will join the ranks of the unemployed as companies increase pay-outs to shareholders rather than invest profits in new workers.
The ILO’s Global Employment Trends forecasts world unemployment will rise to 6.1% this year from 6% in 2013 and will remain well above its pre-crisis rate of 5.5% for several years. It puts youth unemployment rate at 13.1%, more than double that for the whole workforce and three times the adult rate of 4.6%, a recorded high for the ratio of youth to adult unemployment.
Guy Ryder, the ILO’s director-general also highlighted rising inequality as wages fail to pick up, long-term unemployment problems intensify and progress stalls on cutting working poverty.
Corporate profits are up and global equity markets are looking forward to another year of plenty, while at the same time unemployment and household incomes stand still. The modest economic recovery has not translated into an improvement in the labour market in most countries. Businesses have been sitting on cash or buying back their own stocks, rather than investing in productive capacity and job creation. If we fail to act, if we fail to tackle the youth jobs crisis, long-term unemployment, high drop-out rates and other pressing labour market issues, we will be destroying hopes for sustainable growth and sowing the seeds of further, and perhaps deeper social unrest.
Market snapshot at 10:00 am UK time
The ASX 200 closed up 0.79%, the CSI 300 up 0.99%, the Hang Seng closed up 0.45% whilst the Nikkei index closed up 0.99%. The Nikkei rallied on the belief by analysts that the central bank (the BOJ) may actually increase the monetary stimulus (beyond the current level) in order to prevent the weak recovery fading when a sales tax is introduced.
European equities have opened up positive; euro STOXX up 0.31%, CAC up 0.12%, DAX up 0.22% and the UK FTSE up 0.10%. Looking towards the New York open the DJIA equity index future is up 0.37%, the SPX future is up 0.27% and the NASDAQ up 0.54%.
NYMEX WTI oil is currently down 0.18% at 94.20 per barrel, with nat gas on COMEX down 0.28% at $4.31 per therm. COMEX gold is down 0.05% at $1251.30 per ounce with silver down 0.96% at $20.11 per ounce.
Forex focus
The yen slid 0.3 percent to 104.53 per dollar early in London, after rising 0.4 percent in the past three sessions. It dropped 0.3 percent to 141.64 per euro from yesterday, when it touched 140.33, the strongest since Dec. 6th. The greenback was little changed at $1.3551 against the now 18-nation currency.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen versus the USD, compared with those on a gain, net shorts, was 118,066 on Jan.14th, the least since November and compared with net shorts of 128,868 a week earlier. The yen fell versus its major peers as the Bank of Japan began a two-day monetary policy meeting amid speculation Governor Haruhiko Kuroda will expand stimulus this year to counter the drag from a planned sales tax increase.
The pound gained less than 0.1 percent to 82.44 pence per euro early London time after appreciating to 82.33 pence yesterday, the strongest since Jan. 9th. The U.K. currency traded at $1.6445. The pound neared its two-week high versus the euro before an industry report from the UK’s CBI economists said will show that a gauge of U.K. business optimism climbed to the highest level in 20 years in the three months through January.
The Dollar Spot Index advanced 0.1 percent to 1,034.22, headed for its longest rise since Nov. 1st. New Zealand’s dollar was little changed at 83.28 U.S. cents from yesterday, when it rose by 0.9 percent.
Bonds briefing
Ten-year USA debt yields rose four basis points, or 0.04 percentage point, to 2.86 percent early London time after dropping to 2.82 percent on Jan. 17th, the lowest since Dec. 11th. The 2.75 percent note maturing in November 2023 fell 10/32, or $3.13 per $1,000 face amount, to 99 3/32. U.S. as bond markets were shut for a holiday yesterday. Treasuries fell, with 10-year notes ending their longest run of weekly gains since September, as speculation grows that the U.S. economic recovery will build momentum dimmed the demand for the safe haven appeal of USA government debt.
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